The Company's Biz. Cellular Technical Services protects the wireless
telecommunications industry from fraud, preventing hackers from stealing
precious phone time from legitimate users. The company's main vehicles for
doing this are its Blackbird fraud prevention application and its No Clone
Zone roaming fraud prevention service. The company has significant agreements
with Airtouch Cellular, Ameritech Cellular, AT&T Wireless, and GTE Mobilenet
of California and Virginia.

By using the PreTect application developed on Cellular's Blackbird platform,
a wireless service provider can set up a "user/device authentication" system
that "proactively prevents cloning fraud in real-time." All of the company's
products use radio frequency-based fingerprinting. The company's major competitor
in this arena is the recently public Corsair Communications (Nasdaq: CAIR).

The Story. Many stories of companies locked in the share price decline
death spiral begin with no history of sustained profitability. This story
is just like all of those others and worse, given that Cellular Technical
threw in some changes in its revenue recognition policy in the fiscal first
quarter that really gummed up the works. Although the company was confident
that its ability to deploy the Blackbird system justified recognizing revenue
faster, future orders did not come through, leaving management holding the
bag. Looking at a graph of the last seven quarters of revenues is like looking
at a very thin mountain peak -- never the sort of pattern you want in an
investment.

Even though the company booked a record $17 million in revenues in the first
quarter reported in mid-February, management disclosed some deployment timing
issues that put a damper on the party, as did the resignation of the company's
chief operating officer. When orders expected at the end of the second quarter
did not materialize as planned, the company was forced to forecast a loss
in early July. Questions about whether or not the company even had a patent
for its Blackbird system dogged the shares mid-year. The late July second
quarter earnings statement came complete with a warning that orders in the
second half would get worse, something that the company proved in early October
when it reported $993,000 in revenues versus $10.3 million the year before.

How Could You Have Avoided This Loser. The warning at the beginning
of the year was pretty bold, particularly considering that, in spite of what
appeared to be short-term problems, insiders responded by filing for a
400,000-share offering two weeks before investors found out about this gem.
Combined with management defections, changing accounting standards, and a
total lack of any history of profitability, this company could never have
been considered a safe bet.

Added to all of the uncertainty is the fact that the company's products are
focused on analog cellular, meaning that they are not useful for PCS and
digital cellular applications. Even considering that the analog market is
currently the largest available cellular market and that the company believes
its products could be adapted for use in digital markets, this could still
represent a significant limitation to the company's future growth.

The Future. While Cellular Technology has been struggling to make
sales and complaining of longer order cycles holding up adoption of its Blackbird
platform, its competitor Corsair has been reporting consistent earnings growth.
Given Cellular Technical's rate of cash burn, unless it starts generating
cash the company will run out of it in the next two or three quarters. With
mounting losses, a price/sales ratio that still is above 2.0, and a pretty
limited balance sheet, investors might consider retrieving what they have
left in the stock and moving on.